Business History, Vol. 48, No. 1, January 2006, 90 – 118 The Fable of the Birth of the Japanese Automobile Industry: A Reconsideration of the Toyoda–Platt Agreement of 1929 Kazuo Wada In discussing the birth of the Japanese automobile industry, most researchers and journalists put the Toyota Motor Corporation and the Toyoda–Platt Agreement at centre-stage. It has been widely asserted that the one million yen (¥100,000) that was received as a result of the Agreement provided Kiichiro Toyoda with the means to begin his research on the automobile. But the historical evidence does not support this legendary story, and in many ways contradicts it. This article aims to set the historical record straight. Keywords: Toyota; Toyoda–Platt Agreement; Technology Transfer; Lancashire; Textiles In June 2000, a Toyoda Type G Automatic Loom was put on display in the Science Museum in London. Beside the display is found the following explanatory text: Toyoda Type G Automatic Loom, 1924 This ‘non-stop shuttle change Toyoda automatic loom’ was invented by Sakichi Toyoda, who had developed the first Japanese power loom in 1896. Toyoda improved his designs for over two decades before launching the Type G in 1924. It was the first loom in the world to incorporate an automatic shuttle changer, allowing continuous high-speed working. The efficiency of each loom was thereby increased, and many more looms could be attended by a single worker, greatly reducing production costs. By 1929, the Toyoda loom was being sold in the West, and Platt Brothers of Oldham, then the world’s foremost textile machinery manufacturer, took out a licence to produce it. With the profits from the loom business and the licence fee from Platts, Toyoda and his son Kiichiro launched the Toyoda Motor Company Ltd. Kazuo Wada is Professor of Business History at the University of Tokyo. ISSN 0007-6791 print/1743-7938 online Ó 2006 Taylor & Francis DOI: 10.1080/00076790500204768 THE BIRTH OF THE JAPANESE AUTOMOBILE INDUSTRY 91 This explanation perpetuates a fable that is accepted by many academic or journalistic articles. This article attempts to demolish that fable. The basic patent of the Type G automatic loom is Patent No. 65156 in Japan. The holder of this patent was not Sakichi Toyoda, but his son Kiichiro. In March 1938 the Imperial Academy of Inventions in Japan gave the Imperial Commemorative Award to Kiichiro in recognition of his shuttle-change automatic loom (Patent No. 65156). The fable tells us that the royalty paid by Platts in return for the licence to manufacture the Toyoda Automatic Loom initially financed the foundation of Figure 1 Relationships of Companies Mentioned in this Article 92 BUSINESS HISTORY Toyoda Motor Company Ltd (see Figure 1 on the relationship of the companies mentioned in this article). But careful research does not support this. Most Japanese scholars and journalists believe that Platts acquired the licence for production simply in order to suppress competition from Japan. This article disproves this claim. The present author compiled and edited the original documents written by Kiichiro Toyoda, in co-operation with Toyota Motor Corporation. This was published as Corpus of Kiichiro Toyoda’s Documents (Toyoda Kiichiro Monjo Shusei) in 1999.1 In the same year Professor Tsunehiko Yui and I were commissioned by the company to write the official biography of Kiichiro Toyoda.2 Therefore, I had an opportunity to consult the company’s documents in addition to Kiichiro’s original documents, as well as to interview many older ex-employees and senior executives including Kiichiro’s son, Shoichiro Toyoda. This article is based on my investigation of these materials. The Toyoda–Platt Agreement of 1929 shows that technology transfer occurred between Japan and the West, but in a reversal of the normal historic pattern, from Japan to the West rather than from the West to Japan. The Type G automatic loom also played a crucial role in the development of precision engineering in Japan, and it is important to set the historical record straight. First, we should clarify what the legendary story tells us. Is the Legendary Story Correct? The Toyota Motor Corporation is now one of the most famous companies in Japan: one can find whole shelves of bookstores in Japan with books and magazines on the company. Many of them have recounted the story of the birth of Toyota as follows: (1) Sakichi Toyoda (1867–1930), a great inventor of textile machinery in Japan, developed a non-stop shuttle change automatic loom, the Type G Toyoda automatic loom. (2) Sakichi Toyoda sold the licence for producing the Type G Toyoda automatic loom to Platt Brothers & Co. in England. (3) Platt Brothers intentionally did not produce Type G looms because the company just wanted to keep the Type G out of the market. In addition, Platt Brothers wanted to renegotiate the licence contract in order to reduce the licence fee. (4) On his deathbed, Sakichi Toyoda, furious about Platt Brothers’ behaviour, gave the licence fee from Platt Brothers to his son, Kiichiro Toyoda (1894–1952), and directed him to establish a car manufacturing business. Kiichiro Toyoda, therefore, established the automobile manufacturing business in Japan because of the dying wish of his father, Sakichi. This fable, now widely accepted, tells us that a dutiful son followed his ingenious father’s advice, out of which emerged one of the greatest companies in the world. THE BIRTH OF THE JAPANESE AUTOMOBILE INDUSTRY 93 A few scholars, however, have been sceptical; one has characterized it as the ‘setting for a story that was a bit too much like the stuff of minstrel ballads’ with its focus on this ‘dying wish of Sakichi’.3 In fact, the historical evidence does not support the legend, and in many ways contradicts it. Setting the historical record straight is important for understanding the conditions that supported the emergence in the 1930s of a company that would lead Japan’s remarkable growth in the post-World War II era. It has been widely asserted that the one million yen (£100,000) that was received as a result of the Toyoda–Platt Agreement provided Kiichiro with the means to begin researching into the automobile. In The Biography of Sakichi Toyoda,4 a famous Japanese historian claimed: The 100,000 pounds that were received on the basis of the Toyoda–Platt Agreement eventually provided Kiichiro with the motive to make the Toyota automobile after he returned to Japan. The Taxation Office levied the huge tax because it assessed as the selling price of the patent rights the sum of 100,000 pounds stipulated in the Toyoda–Platt Agreement. The Toyoda side countered by showing the text of the contract and insisting that the money was to be paid in instalments of 8,000 pounds every half-year (16,000 pounds a year) and thus levying a tax on the entire amount was unfair, but the Taxation Office refused to change its position that tax must be paid on the entire 100,000 pounds. Then the Toyoda side appealed to the Incomes Inquiry Committee, which decided that ‘the tax levy is in error,’ and the higher Incomes Inquiry Committee (which is part of the Nagoya Taxation Supervisory Board) came down with a similar decision. Finally in 1933 it instituted administrative litigation. In subsequent years its general director was changed four times, and after the war jurisdiction was transferred to the Supreme Court; all together, the case was heard more than twenty times, and in the end it was referred to mediation. Since the whole of the 100,000-pound fee (royalty) for use of the patent right had already been paid in full, the issue was resolved by the payment of about 500,000 yen [£50,000] in all, including 160,000 yen [£16,000] for income tax and the rest for prefectural, municipal, and other taxes.5 Though this was how it was finally resolved, Sakichi was so angry at the unreasonable actions of the Taxation Office that he told Kiichiro, ‘Seeing that these 100,000 pounds are jinxed, you might as well use the money to study automobiles; after all, it’s the same as if we found it on the street. It’s a million yen [£100,000] that I figured we’d have to deposit in the bank anyway, so I guess you might as well use it to do groundwork for making automobiles’. Kiichiro, who had returned from his trip to the United States and Europe in March 1930, was extremely happy to be told this, and he immediately set up an automobile programme in the Toyoda Automatic Loom Works factory that nobody knew about.6 The amount of money Toyoda received from Platt Brothers in 1930, however, was not one million yen (£100,000) but just 250,000 yen (£25,000) – an insufficient sum to carry out automobile-related research. It appears, moreover, that this sum was distributed among Toyoda employees to lift their morale. The financial condition of the Toyoda Automatic Loom Works had been poor in 1930. The company had cut wages and dismissed 21 workers in the summer of 1930, resulting in a labour dispute. At the memorial service in February 1931, on the hundredth day following Sakichi’s 94 BUSINESS HISTORY death, 250,000 yen (£25,000) was distributed among about 6,000 employees in the Toyoda group as a special reward for past services. Of this sum, 100,000 yen (£10,000) was divided among the senior personnel who had worked directly with Sakichi in the course of his inventions, with the remaining 150,000 yen (£15,000) being allotted to the other employees in the group.7 The traditional story of the origins of Toyota is, therefore, suspect.